Case Note & Summary
The matter arose from four Criminal Revision Applications filed before the High Court of Bombay challenging a common order of the SEBI Special Court that had rejected the applications for discharge filed by the accused directors. The applicants were directors of a company prosecuted by SEBI for non-payment of a monetary penalty imposed in adjudication proceedings under the SEBI Act. The adjudication order had been passed in 2003 for violations of SAST Regulations, and the penalty remained unpaid despite the company’s appeal being dismissed by the Securities Appellate Tribunal. SEBI initiated criminal proceedings by filing a complaint in 2013, alleging an offence under Section 24(2) read with Section 27 of the SEBI Act. The applicants sought discharge on the ground that the complaint lacked specific averments that they were in charge of and responsible for the conduct of the company’s business, a necessary requirement for vicarious liability under Section 27. They contended that the show-cause notice was only issued to the company, the prosecution was belated, and the Special Court wrongly relied on observations from the adjudication order regarding lifting of the corporate veil. The applicants further argued that Section 27 is pari materia with Section 141 of the Negotiable Instruments Act and that the Special Court’s distinction between the two was erroneous. The High Court heard the revision applications for final disposal at the admission stage. The judgment text provided only contains the factual background and detailed arguments advanced by the applicants, and it ends abruptly without the court’s analysis or final decision.
Headnote
A) Securities Law - Vicarious Liability of Directors - Requirement of Specific Averments - Securities and Exchange Board of India Act, 1992, Sections 27, 24(2) - The applicants argued that the complaint did not contain specific averments that they were in charge of and responsible for the company's business, a mandatory requirement under Section 27. It was contended that mere directorship is insufficient to establish vicarious criminal liability, and the Special Court erred in relying on the adjudication order which lifted the corporate veil. (Paras 7, 8) B) Securities Law - Criminal Prosecution for Non-Payment of Penalty - Scope of Section 24(2) - The applicants submitted that the show-cause notice was issued only to the company, not to directors, and that the company had tendered part payment showing willingness, yet prosecution was initiated after a delay of about five years, making it belated. (Paras 7, 8) C) Statutory Interpretation - Pari Materia Provisions - Section 27 SEBI Act and Section 141 Negotiable Instruments Act - It was submitted that Section 27 of the SEBI Act is analogous to Section 141 of the NI Act, and the Special Court erroneously distinguished them on scope and object, despite both provisions dealing with vicarious liability of company officers. Reliance was placed on Monaben Ketanbhai Shah v. State of Gujarat. (Paras 7, 8) D) Criminal Procedure - Discharge Application - Reliance on Adjudication Proceedings - The applicants argued that the Special Court improperly applied the adjudication order's findings on lifting of corporate veil to deny discharge, without independent evidence of the directors' involvement in the day-to-day affairs of the company. (Paras 7, 8)
Issue of Consideration
Whether the Special Court erred in rejecting the discharge applications of the accused directors when the complaint lacked specific averments of vicarious liability under Section 27 of the SEBI Act
Law Points
- Vicarious liability under Section 27 of SEBI Act
- requirement of specific averments in complaint
- lifting of corporate veil
- scope of Section 24(2) for non-payment of penalty
- analogy between Section 27 SEBI Act and Section 141 NI Act
- delay in prosecution
